Financial institutions regulation and systematic risk

Giuliano Iannotta and George Pennacchi
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Giuliano Iannotta: Università Cattolica
George Pennacchi: University of Illinois

BANCARIA, 2014, vol. 9, 22-36

Abstract: Does a regulation based on credit ratings create an incentive to make loans and invest in bonds that have relatively high systematic risk? Using an international sample of almost 4,000 bonds, we test whether credit rating basedregulation can create moral hazard. The results of the study show that systematic risk has a significant and positive effect on bonds’ credit spread, thus creating an incentive for financial institutions to increase systematic risk

JEL-codes: G18 G21 G28 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:ban:bancar:v:09:y:2014:m:september:p:22-36

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